Why Don’t They Tell Us This About Taxes – And Why Won’t We Hear It?

Recall this portion of the April 2008 Democratic presidential debate regarding taxes:

Credit Charlie Gibson for attempting to make a point: History consistently shows tax revenues are higher when the tax rate is lower. Obama twice sidestepped Gibson’s question, first talking about “fairness” (huh?), effectively saying that lower rates are unfair, no matter how much more money they raise. The second time he questioned the historical link between low tax rates and higher tax revenues by saying “… uh, eh, eh-eh, That MIGHT happen, uh, or it might not…” Hillary Clinton simply answered a different question than the one posed.

However, Charlie Gibson’s question misses the real point. So also does the fact that each of the four times federal income tax rates were lowered (following World War I, in the 1960’s, in the 1980’s, and the 2000’s), income tax revenues increased. So also does the current debate about extending the current income tax rates or returning to the higher rates of the 1990’s. Finally, the excited rumors of pending tax reform also miss the real point.

The real point is these 30 words: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

That is the entire text of the 16th Amendment to the US Constitution. Congress’ received this power less than a century ago, in 1913, part of an early 20th century wave of progressive government reform which also included: the direct election by voters, rather than selection by state legislatures, of US Senators; the prohibition of alcohol; and women’s suffrage – these were the 17th, 18th, and 19th amendments. But let’s not lose focus as did Mr. Gibson when trying to question Hillary and Barack.

Without the 16th Amendment, there is no 2008 debate question regarding national capital gains taxes. Without that amendment, there would be no discussion of the Clinton era versus Bush era income tax rates. Without the 16th Amendment, no private citizen would deal with the IRS regarding income taxation; they would address such matters with the state taxing authority.

The 16th Amendment’s ratification robbed US citizens of a significant constitutional protection. Prior to it, the American people’s incomes were safe from Congress. Congress could levy whatever taxes they saw fit, however it was for the states to determine how to raise what was apportioned to them. Sales taxes, excise taxes, fees, income taxes – whatever worked best financially, economically, or politically for that state. The federal government could not harass individual citizens about federal income taxes – there was no such thing. Consequently, there was a barrier between citizens and the federal government regarding the private property known as their incomes.

Why did that protection matter? Well, there was less federal stress for Americans. Also, citizens had more input into what taxes were paid. Additionally, well… look at this graph of public debt from 1900 and projected through 2016. The debt hardly registered before the 16th Amendment was ratified in 1913. Though the numbers then were small by today’s standard, between 1913 and 1916, the debt grew nearly 30%. Some may blame World War I, but the US did not enter that war until 1917.

Fast forward through the 1920’s (when the federal government ran a budget surplus each year, after lowering income tax rates) and look at the period 1940 through 1946. The more than four-fold debt increase is understandable – World War II was on. However, the US had no armed conflict during the 1930’s; what is to explain the more than 70% increase in debt during that decade?

Try this: once the 16th Amendment was ratified, Congress and the Senate went from protecting citizens from the excesses of federal spending to advocating the federal position. There was no limit on Congress’ power to tax incomes, and the taxation process by-passed the inputs of the states. The feds were free to tax as they pleased, and the constitutional check and balance between the states and the federal government regarding income taxation was all but removed.

Worse yet, federal finances became a discussion that occurred entirely inside Washington, D.C. Since Congress no longer relied upon state governments to provide the major part of their income, they no longer paid attention to state government input regarding federal spending. The result, though indirect, can be directly seen in the growth of public debt since the ratification of the 16th Amendment.

I’ll end with a couple of questions. If Congress still had to apportion taxes to the states, then do you think we would have spent the last three years without a federal budget; would the states have readily accepted an apportionment of taxes without knowing the total bill? If Congress had to depend upon the currently cash-strapped states to pony up its money, does anyone doubt there would be a bit more resistance to the idea of the federal government borrowing 40 cents of every dollar it spent?

The 16th Amendment disrupted what the Founders designed as a state and federal government dialog regarding the national finances. That dialog was to be dominated by the states, being the major sources of federal income. Less than a century after the change was made, and with the states largely out of the national financial discussion, the US government owes more money than the US economy produces in a year. At no time before the 16th Amendment did the US debt ever become this much out of hand. I have a difficult time believing this to be a coincidence.

Regarding what should be done regarding this, I favor the word of the prophet, “Thus saith the Lord, Stand ye in the ways, and see, and ask for the old paths, where is the good way, and walk therein, and ye shall find rest for your souls. But they said, We will not walk therein” (Jeremiah 6:16).

The way to walk is to repeal the 16th Amendment. I only hope the national sentiment is not reflected in the last sentence of that verse.